Jul 05, 2012

SEC Names Official to Oversee His Former Industry

The Securities and Exchange Commission has named Norm Champ, a former board member of an investment industry lobbying group, to head a division charged with regulating investment management firms.

The SEC announced today that Champ will become director of the Division of Investment Management, which regulates America’s multi-trillion dollar investment management industry. The industry includes hedge funds, mutual funds, and private equity funds.

Champ’s appointment comes at a time when the SEC is expanding its oversight of hedge funds and other firms supervised by the Division of Investment Management, as required by the Dodd-Frank law overhauling financial regulation. Last year, SEC Chairman Mary Schapiro announced that new agency regulations “will fill a key gap in the regulatory landscape,” giving the SEC and the public “insight into hedge fund and other private fund managers who previously conducted their work under the radar and outside the vision of regulators.”

The Division of Investment Management has also played a key role in the SEC’s efforts to tighten restrictions on money market mutual funds, a popular investment tool for businesses and individuals. Schapiro testified last month that money market funds “remain susceptible today to investor runs with potential systemic impacts . . . as occurred during the financial crisis just four years ago.” Industry groups have strongly opposed proposed restrictions, and Schapiro appears to be fighting an uphill battle within her own agency to get new rules passed.

Asked for comment, Champ referred POGO to SEC spokesman John Nester, who said the agency has a “rigorous program for our staff to avoid even the mere appearance of partiality in our work.” The Managed Funds Association did not immediately respond.

In his past work at the SEC, Champ helped oversee examinations that identified concerns at 10 credit-rating agencies. Then, he explained the SEC's decision not to publicly identify the rating agencies where the problems were found.

"In the report, we believe it is fair and consistent with due process not to name names," Champ said at the time, according to The Washington Post.

The examinations, mandated by Congress under the Dodd-Frank Act, involved firms that assess the creditworthiness of corporate bonds and other investments. The SEC said its findings included "apparent failures in some instances to follow ratings methodologies and procedures, to make timely and accurate disclosures, to establish effective internal control structures for the rating process and to adequately manage conflicts of interest."

But in a summary report issued last fall, the SEC did not say which rating agencies had engaged in those practices. That approach spared rating agencies embarrassment and left investors in the dark as to what the findings might mean for the reliability of any particular rating agency or investment, The Post reported in September.